Example of equalancy the price ratio, Financial Accounting

Assignment Help:

Natasha's income is $300 per month. She spends all of it on tickets to concerts and films. A concert ticket costs $15 and a fi lm ticket costs $10. Her marginal rate of substitution for concerts with films, MRSCF , is F/C, where C stands for the number of concert tickets and F stands for the number of films.  Fractions are allowed-for example, if she buys half of a concert ticket, that means she goes to a concert every other month). How many film tickets will she purchase, and how many concert tickets?

The Solution Notice that MRSCF decreases as C rises and F falls. Therefore, each of Natasha's indifference curves has a declining MRS. To find a best choice, we look for a bundle on her budget line that satisfies the tangency condition.

At Natasha's best choice, her marginal rate of substitution between films and concerts equals the price ratio: MRSCF _ PC/PF . Substituting the information contained in the statement of the problem gives us the following: F/C _ 15/10 _ 1.5. In other words, Natasha purchases 1.5 times as many movie tickets as concert tickets.

The formula for Natasha's budget line is PCC _ PFF _ 300. Substituting the values of the prices into this formula, we have 15C _ 10F _ 300. Using the fact that F _ 1.5C gives us 15C _ 10(1.5C) _ 300, or 30C _ 300. So C _ 10, and F _ 15.

Natasha purchases 10 concert tickets and 15 movie tickets.

 


Related Discussions:- Example of equalancy the price ratio

Participation of employees in management, Q. Participation of Employees in ...

Q. Participation of Employees in Management? To facilitate meaningful and effective participation of workers in the management process it was decided in March 1994 that the Cor

Earnings and dividends per equity share, Whereas dividend may be of prime s...

Whereas dividend may be of prime significance to some equity shareholders, this may not be so for the other shareholders. Several shareholders may be interested in receiving a usua

Adjustment entry, 1) A sales discount correctly taken by the charge custome...

1) A sales discount correctly taken by the charge customer was debited to Sales at the time the entry was recorded. This error will cause. A) the net income for the period to be un

Trial balance, Jim owns and manages a small business, which provides an off...

Jim owns and manages a small business, which provides an office design service, as well as buying and selling office furniture. Jim is a sole trader who manages all aspects of the

Determine the overvalue or undervalue of share, The New York Jets have deci...

The New York Jets have decided to go public and are offering new shares for $40. Since the Jets want to build a new stadium, the firm will retain all earnings and will not issue an

Project Assistance, How do you create an Excel document with several financ...

How do you create an Excel document with several financial statements, all linked together with specific financial data?

Explain the negative assurance, Q. Explain the Negative Assurance? Nega...

Q. Explain the Negative Assurance? Negative Assurance - Report issued by an ACCOUNTANT based on limited procedures which states that nothing has come to accountant's attention

Prepare a budgeted income statement, The Schrödinger Science Store operates...

The Schrödinger Science Store operates a retail store in a local shopping mall.The results of operations for the fourth quarter of 2011 are as follows: Sales

Admission of a new partner, Admission of a new partner When a new partn...

Admission of a new partner When a new partner joins the firm/partnership, the new partner will enjoy the benefits arising as a result of goodwill created by the old existing pa

Define current liability, The following items represent liabilities on a fi...

The following items represent liabilities on a firm's balance sheet: a. An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed. b. An a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd